How Airdrops Work

When a startup or projects decides to do an airdrop, they first take a snapshot of the blockchain upon which their project is based. Bitcoin based projects will take a snapshot of the Bitcoin chain, Ethereum based projects of the Ethereum chain, and so on. Then, at a predetermined time, the startup will distribute their platform tokens to the wallet addresses contained on the snapshot.

For coin holders, the process is completely effortless. There is nothing a user needs to do to receive the tokens. They are simply routed to the user’s wallet by the token issuer.

The only requirement is that they hold a certain amount of the underlying crypto coins. The more coins a user holds, the more tokens he or she will receive in the airdrop, since tokens are distributed proportionately.

Why Projects Use Airdrops

Airdrops are used by startups and projects to attract new users and incentivize existing participants. They are marketing tools that can be used to boost a platform’s popularity.

Airdrops attract new users by giving them a way to pilot the platform or project. The hope is that the platform or project will impress the airdrop recipients, encouraging them to buy more tokens in the open market and use them on the platform.

For existing users, airdrops are a way for startups to show their appreciation, thereby giving them more resources to interact with the project.

In either case, the end goal is token use and price appreciation. If a coin shows genuine utilitarian value and price appreciation, non-users will become users by buying the tokens in the market, thereby pushing the price up. In turn this will encourage platform use and attract a larger portion of the crypto community.

Airdrops’ Impact on Digital Coin Users

Airdrops incentivize digital coin users to be more active in the crypto community and to diversify their coin holders. Because airdrops typically reward tokens on a proportionate basis, users with a larger stake in the underlying cryptocurrency will receive a larger reward.

Users who own Bitcoin, Ethereum, and Ripple therefore have a higher chance of receiving an airdrop than a user who only owns Ethereum. A diversified cryptocurrency portfolio only increases the chances of receiving airdropped tokens.

Potential Downsides of Airdrops

Not everything is rose colored in the cryptocurrency airdrop world, and some airdrops have failed miserably. The company risks sending coins to uninterested parties who will simply ignore the free tokens. Users may also take the coins and sell them in the open market to make a quick buck, sending the price lower.

There is also the potential that users will utilize the free tokens, but leave the platform dissatisfied. If enough users disapprove of the blockchain startup or project, the token issuers could end up killing their project prematurely.

Individuals should also be wary of airdrop scams like bait and switches or hacking attempts. Users should never give out their private keys and must always be cautious around offers that sound too good to be true

Stablecoins are cryptocurrencies with a fixed price. Most of them peg, or attach, the price of the cryptocurrency to a fiat currency such as the dollar. This is in contract to most cryptocurrencies which are known for their price volatility.